Mr. Walker, you are wrong about tea marketplaces

[peter]

This is a response to a prediction that Jason Walker made here, this forum post originated as part of a larger response posted in our blog Interesting Criticism: Tea Trade is a clusterfuck. This post is part commentary on Mr. Walker’s prediction and a very brief primer on how tea marketplaces work.

One of Jason Walker’s predictions for 2013 is Look for more multi-brand tea marketplaces.

Nope, sorry. There is a reason, and much of that has to do with two things: technology and cost.

Tea Trade led the way when we innovated and built the first tea-dedicated marketplace on the web. Tea Trade is built entirely on the WordPress platform, that means it is based on an off-the-shelf software product that is then configured to purpose. Tea Trade is also an entirely DIY affair as well, I established and configured the whole thing and that literally saves thousands of dollars. There are plenty of WordPress developers out there, but ones with the knowledge to build out a e-commerce multisite dwindles rapidly. If someone wanted to hire a consultant to build a competing tea marketplace based on WordPress, they would be looking to spend $15,000+ for a consultant to do it, and that number can get much higher depending on the breadth of the project. It could be done by an off-shore developer for about $5,000-$8,000 but you get what you pay for.

That estimate only covers setting up, theming and configuring a WordPress-based marketplace. If the marketplace needed to be coded from scratch, you can double, or even triple that price.

There is also the issue of getting products into the marketplace. Who is going to sell there? Established companies? No, not enough traffic. Established tea companies do sell in what they call third-party markets, but they focus on using really big marketplaces for that like Amazon or eBay. I had a long chat with a VP from Mighty Leaf tea about this in the very early Tea Trade days. For these types of businesses, third-party markets are basically outlet stores for tea that is beyond its sell-by date. A customer can get value and tea through Amazon and eBay from the big sellers, but it is tea they are liquidating. My efforts to build an online outlet store for Mighty Leaf tea on Tea Trade were unsuccessful, we were just too small. In fact, had they agreed, the amount of product they needed to list would have disproportionately overwhelmed our Marketplace and website anyhow, at the time we were actually better off without them.

Smaller companies are the target market for building a tea marketplace, but if they already have a website selling tea, then why should they go through the extra expense to sell tea through you and let you take part of their profits? Selling tea in America is 100% about branding, demonstrating and adding value to the tea, if what you are offering doesn’t help them add value then why should they work with you?

The margins are too small. This comes back to the adding value aspect of it. If what you offer cannot help the seller add enough value to the tea to create sustainable margins, then your struggle is not only uphill, but also up a cliff. The margins in tea are small, one issue Tea Trade has always had in attracting sellers are those margins. We take a percentage of each sale, and PayPal does too – this makes it harder to run a strong-volume business this way. It is fine for small, home-based boutiques, but any company with enough money to lease an office space with a finely-tuned accountancy budget isn’t going to bother unless the marketplace offers a way to mitigate those costs (for the record, Tea Trade does offer a commission-free service for high-volume sellers.)

Ultimately, there will not be a bunch more multi-brand tea marketplaces springing up, because of many of the operational sides of the tea industry. The concept of the multi-brand tea marketplace is not a bad one, but there are things that need to be addressed like costs, threshold to entry (Tea Trade’s is unfortunately high because it uses WordPress and allows sellers to build their own sites, this has a learning curve. We work to lower the threshold though training and support,) technology base, and business relationship reach. Even Steepster abandoned the marketplace parts of its features and stopped pursuing links to the product pages because of the problems involved with it. I found their approach novel, but noticed when they stopped supporting it in favor of Steepster Select, which undoubtedly provided a stronger revenue stream.

Finally, Mr. Walker, Tealet is not a marketplace. I love what they are doing and the products they provide, but they are a tea retailer. They source tea from various places and sell it online, that makes them a retailer. Tea Trade does not source tea, in the same way that Etsy does not source handcrafted items, or eBay does not source stolen TVs for sale. Our sellers sell their own stuff, in their own way, using our platform – that is what a marketplace is. As of this writing, after two years, Tea Trade still offers the only independent tea-dedicated marketplace online.

[bram]

In principle: what you did others can too. For a similar price or even lower because you already paved the way. For a higher price if there ain’t enough customers (teasellers) out there.  But it can be done. We no longer have the knowledge to get someone on the moon, but it could be done again for a similar price.

 

From your two posts I gather that this type of site: small specialized multiseller site is actually new (small compared to Ebay as a multiseller site and that aspect is not that old either). So anything can still happen and things should get technological easier while time passes.

So competition can arise, but it is not cheap. TT has a 2-year head-start so either the advantage of a settled base and perhaps the disadvantage of things that are settled (and thereby costing maintenance and work and thereby slowing new developments)

 

To see how many of these sites can survive we need to know the market. How many potential small tea sellers are there? How many will choose a specialized market over an ebay store? I would say much more than there are today. But how many TT’s can they feed?

 

 

[Jackie]

@bram – Yes, in principle others can do it too. But not “for a similar price or lower” just because we already paved the way. The point @peter makes is that it’s very expensive to hire someone to create a site like Tea Trade – unless you know how to build it yourself.

[bram]

@jackie: That’s why I started with “in principle”. There are more tealovers out there with programming skill. Furthermore if I talk about price I’m not only talking about money, but also about time and effort. Furthermore Peter worked with the WordPress guys on a marketplace system. So the results of that are on the market, the paving you did lowered the price for any programmer that want to start such a market. Either in tea or something else.  With WordPress as an example similar systems will be developed on other platforms. thereby creating a new base.

 

So yes I think that there are people out there that could do it. I know that I could do it if I wanted to (don’t worry I don’t want to do at home what I do at work and I have no interest in starting a commercial life). But I have to agree that there are only a few out there who not only are interested in building a tea site like this, but also have the skill themselves to do it themselves.   And there are people out there with more money at their disposal, if they really want to.

But I’m not really interested in whether there are actually people out there that could do it.  I would count on yes whatever the answer turns out to be.

I think the more important questions are: What can we do to grow? How can we stay ahead of any competition? How can we improve regardless of competition?  etc

[Xavier]

@bram to answer your questions I think he prefers a blue ocean strategy (I know you @peter :P) or to summarize it too much to be where you don’t expect the market to be, to create it.

[peter]

All good points. @bram one of the things I’m also trying to highlight is that, yes, building a tea marketplace can certainly be done. There are certainly ways to do it better, though better is often a matter of perspective. There are definitely areas we can improve on, but what a marketplace does often depends on the values of those involved in it.

Here someone can have their entire very own website, someone else make take a different model and keep folks in a more constrained visual experience. Tea Trade was initially founded on the idea of allowing people to sell off the extra tea in their kitchen. I wanted to take tea swaps that people often do with online friends and add a little financial incentive to it. The evolution of Tea Trade as an ecommerce platform evolved well away from that because our threshold to entry and learning is too high for that sort of trading commerce. Getting a whole website for yourself is not conducive to selling off a few extra packets of tea from your kitchen.

To that end, I’ve certainly explored the idea of co-opting a classified ads-type model to re-energize our original tea swap commerce concept. Something small, easy and with a low entry threshold would do that. We certainly have the brand recognition now to support something like that.

The other issue I tried to address in my op was that there are operational considerations to building a marketplace. A clever programmer could tech-wiz it all they want, but without a revenue model built-in to it, or a financial foundation to support in the absence of a revenue model – how far and how long can the marketplace exist? That’s an operational consideration that absolutely needs to be addressed when one starts thinking about a model for a tea marketplace.

[bram]

I agree:

Everyone should think well about their business before starting it. And the bigger the goal  the more it takes. And a site that could compete with TT is not small. So requires quite some investment and thought.

A lot of people underestimate this when starting any business, but especially in the online world. Probably because it is so easy to start something there, especially nowadays. With modern cheap or even free packages you can build something in days. (I’m not up to date on (free) marketplace  software, but it is there)

However, this only gives you an empty shell. You still need to adapt it in a way that is working well and then find users. And that is time consuming and hard work. To compare it with blogging: It takes minutes to set up  a blog on TeaTra.de or elsewhere. Adjusting layout takes a little longer. But writing and especially attracting readers requires a lot more.

So lets not waste energy on building many competing systems, but only enough to keep it interesting and then put all efforts in those systems. So that we get systems that are more than what we otherwise would have had.

 

[Xavier]

@Peter what do you mean by “To that end, I’ve certainly explored the idea of co-opting a classified ads-type model to re-energize our original tea swap commerce concept. Something small, easy and with a low entry threshold would do that. We certainly have the brand recognition now to support something like that.”?

[Author]

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